Krugman's Ignorance Has Distorted Jobs Data

Discussion in 'Data Sets and Feeds' started by Pabst, Apr 4, 2004.

  1. Pabst


    From BARRON'S)
    By Gene Epstein
    There was no surprise in the strong employment report for March. On the
    contrary, it's been long overdue.

    The headline numbers, released Friday by the Bureau of Labor Statistics, show
    an unemployment rate basically unchanged at 5.7%, and a jump in nonfarm payroll
    employment of 308,000. As I've mentioned before in this space, three-month
    averages prove to be much closer to the ultimate revised figures than one-month

    And in this case, gains in payroll employment are not nearly as high as
    308,000, but solid enough. Partly because January and February have already
    been revised up, the three-month average increase through March has been
    171,000; and for the private sector alone, 161,000.

    Some analysts are dismissing the numbers as an artifact of a) better weather
    in March and the end of the supermarket strike in California. But the
    three-month average already factors in the bad weather of January and February.

    And even after excluding employment gains in food-and-beverage outlets, the
    private sector still picked up a monthly average of 150,000.

    The real significance of this report is that all the dots can now be
    connected. By summer '03, the economy began to grow fast enough for the
    joblessness of this recovery to come to an end: With growth in gross-domestic
    product running at an annualized 6.2% in the second half of last year (and
    probably better than 5% in the first quarter of this year), it was no longer
    possible to satisfy the increase in demand without hiring more workers.

    And perhaps just as important, with that kind of growth, new businesses begin
    to sprout up, creating new jobs in the process.

    So employment probably began expanding by late-summer of '03, as virtually
    every labor-market indicator has confirmed -- including weekly claims for
    unemployment insurance (down), announced layoffs by large companies (down), the
    index of help-wanted advertising (up), the employment indexes from the
    Institute for Supply Management and National Federation of Independent Business
    (all up), the unemployment rate itself (down), and the employment figure from
    which the unemployment rate is calculated.

    Nonfarm payroll employment, based on a monthly survey of the payroll records
    of about 160,000 businesses and government agencies, had resisted the trend --
    that is, until now. Manufacturing employment has been flat over the past three
    months, after falling for so long; based on prospects for the growth of output,
    it should be bottoming out. Otherwise, the gains have been fairly widespread --
    in professional and business services, wholesale and retail trade,
    construction, finance, real estate and health care.

    An increase of 171,000 per month is about right for this stage in the
    recovery; employers are always behind the curve. But if payroll gains do not
    run 250,000 per month or more by summer, then this influential indicator will
    again become the piece of the puzzle that doesn't fit.

    Nor can we forgive or forget the 62,000 average increase in the last four
    months of '03. (Over calendar `03, nonfarm payrolls stayed flat.) I still
    believe these figures will eventually be revised up. As I mentioned last month,
    the Bureau of Labor Statistics is probably underestimating the increase in
    employment from new-business formation. The agency itself has said that the
    "model" it uses for this purpose is bad at turning points.

    Since then, I've heard from business-people who have told me that in this
    expansion, they are outsourcing more than ever before to small enterprise for
    services that they used to do in-house. And no, they do not mean offshoring;
    they mean outsourcing, which in this case they do domestically.

    A house architect in upstate New York has told me, for example, that
    contractors no longer have employees on their payrolls, mainly to avoid paying
    workers' compensation insurance.

    If these anecdotes are more than just anecdotes, they indicate that the
    Bureau may be missing more jobs than ever before from small-business formation.

    In any case, we won't know until early next year, when the figures are finally
    "benchmarked" to the unemployment-insurance data, which are supposed to be a
    very universal count.

    -- The unemployment-rate decline has been a bone in the throat of the
    doubters ever since it fell to 5.7% in December. This figure, confirmed for the
    past three months, is printing at either 5.6% or 5.7%, as it did in March --
    down from a range of 6.3% to 6.1% from June through September.

    So what more do they want? Well, the anonymous reporter or reporters at the
    Economist (the articles are never signed) declared Friday that the unemployment
    rate for March was not to be believed because "many Americans, despairing of
    ever finding a job, had dropped out of the work force altogether in recent
    months and were therefore not counted as unemployed."
    This false statement may have been inspired by Princeton economist and New
    York Times columnist Paul Krugman. According to a recent column of his, the
    fact that the "unemployment rate has fallen since last summer...[is] entirely
    the result of people dropping out of the labor force" (March 12). But the labor
    force has increased since last summer, not decreased. Krugman and his possible
    protege at the Economist believe otherwise because someone ignored a footnote.

    This footnote I'm referring to appeared quite prominently below the
    officially posted time series for the civilian labor force on the Bureau of
    Labor Statistics Website. It reads, "Data affected by population changes in
    population controls in January 2000, January 2003 and January 2004."
    Now, anyone who has actually followed the employment numbers will know
    immediately what the agency is trying to tell us. The recent figures are no
    damn good, is what it's trying to tell us, and to find out why, you'll have to
    dig a little.

    Go on the Internet and click on -- a Bureau of
    Labor Statistics (BLS) paper posted March 3, 2004 -- to get the real numbers.

    By the third sentence of that paper, it's clear that the decline you might find
    in the officially posted data is a mirage. (The math's a bit too involved to go
    into here.)
    The official numbers with the big footnote do show a decline in the labor
    force since the summer of last year; but the real numbers show an increase. So
    the fall in the unemployment wasn't caused by "people dropping out of the labor
    force," because people didn't.

    Is this a practical joke that might fool any professional? Well, the BLS
    pulls these jokes all the time. Indeed, I don't know of any Wall Street
    economist, good or bad, who's not aware of these glitches.

    In that same column, Krugman falls for yet another BLS joke: "40 percent of
    the unemployed," he informs us, "have been out of work more than 15 weeks, a
    20-year record."
    Wrong again and for the same embarrassing reason. Someone was looking at the
    officially-posted data. Yet in this case there was no footnote. If there were,
    it would have said, in some way, that you can't compare the recent figures for
    long-term unemployment with the same figures 20 years ago.

    Or if you did, you had to adjust the recent figures downward. Based on an
    analysis in a BLS paper of March '95 (at
    /abstract/ec/ec950090.htm), Krugman's "40 percent" would have to be lowered to
    34.2 percent to make it comparable to the pre-1994 data. And that would not
    even be a 10-year record, much less a 20-year one.

    Why so? Well, in January '94, the Bureau of Labor Statistics and Bureau of
    the Census introduced a redesigned questionnaire for the Current Population
    Survey (CPS). The CPS is the monthly door-to-door survey of about 60,000
    households from which all the "Household Data" are derived, including the data
    on unemployment and unemployment duration.

    The old version had been in use since 1967, and was clearly in need of an
    overhaul. Questions were dropped; others added; and virtually all were

    The BLS and Census had already expected the new questionnaire to cause
    certain tallies to change radically. Indeed, the revised version suddenly found
    many fewer involuntary part-timers, "discouraged" workers, and unemployed "job
    It also found many more of the long-term unemployed. Just how the new
    questions were suddenly bringing new answers is a fascinating story in itself.

    In the case of the long-term unemployed, I personally believe the old questions
    were better.

    In sum, to make an historical comparison between now and 20 years ago, you
    either had to adjust the old data upward, or the new data downward. If you want
    to use these numbers to know what's happening in the real world, you have to
    know these things.
  2. Nah, it's not ignorance. He's just a fucking liberal prick.